Caffyns Regulatory News (CFYN)

Caffyns plc

Preliminary Results for the year ended 31 March 2013

Summary

Highlights

§ Underlying profit before tax of £1,218,000 (2012: £564,000).

§ Profit before tax of £1,522,000 (2012: £1,456,000).

§ Like for like new car unit sales up 18.5%.

§ Like for like increase in underlying revenue of 10.6%.

§ Adjusted earnings per share of 37.3p (2012: 27.2p).

§ Successful disposal of three underperforming businesses.

Commenting on the results, Simon Caffyn, Chief Executive said: "We are pleased to have improved our underlying trading profits after a period of restructuring. We continue to invest the proceeds from the sale of properties and closed operations into larger business opportunities in stronger markets to deliver higher returns on capital. Fewer, bigger sites will enable us to deliver performance improvement. Our improved profitability in the second half of last year has continued into the current financial year."

Enquiries:

Operational and Business Review

Summary of results

I am pleased to report that the Group has increased profit before tax in the year ended 31 March 2013 to £1.52m (2012: £1.46m) building on the underlying profits announced at the half year. Profit before tax and non-underlying items is £1.22m, up from £0.56m (as restated) in the previous financial year.

Revenue at £165.0m was down from £170.2m last year, following the closure of three underperforming businesses during the prior year. Underlying revenues on a like for like basis, excluding the disposal of four non-core operations, increased by 10.6%.

The net non-underlying gain of £0.3m comprised gains on the sale of two properties, net of impairments, of £1.72m together with a net credit on the pension scheme of £67,000 less the costs of closing businesses of £1.07m and other redundancies of £0.41m.

Adjusted earnings per share are 37.3p (2012: 27.2p as restated). Basic earnings per share are 46.6p (2012: 51.0p) reflecting a 15% taxation charge this year compared to a tax credit in the previous year.

New and Used Cars

Our new unit sales were up by 18.5% on a like for like basis, while total UK new car registrations rose by 7.2% over the twelve month period. Within this, the private and small business sector rose by 13.2% so we outperformed both the overall UK average and the specific sector in which Caffyns operates. Our premium and premium-volume franchises continue to perform well and new car margins remained firm, with new car gross profits ahead of our internal expectations.

Used car unit sales in the year were up 2.3% on a like for like basis with the second half up 12.0% on a like for like basis.

Aftersales

Total UK new car registrations continue to be below pre-recession levels resulting in a further reduction in the overall size of the 0 to 5 year old car servicing market and a 2.4% decline in like for like aftersales revenues. However, the actions we have taken to enhance our aftersales marketing and retention procedures, together with our improving new and used car sales, are addressing this issue.

Operations

The UK new car retail market is being driven by manufacturer offers to counteract the depressed market in mainland Europe. Our focus on improving operational processes has seen an encouraging increase in new and used car sales and this, along with used finance and aftersales retention, remains at the centre of our drive to enhance profitability.

The new and enlarged showroom and aftersales facilities for our Volkswagen dealership in Brighton are now complete, on schedule and budget, with the business returning to normal trading after the onsite disruption.

Work on the construction of our new Volkswagen dealership in Worthing began in May 2013, with an expected completion early in 2014. The anticipated cost of the development at £4.75m will be partially offset, in due course, by the sale of the existing site occupied by this franchise in Goring.

In Haywards Heath the enlargement of our Volkswagen showroom has been completed. This dealership is situated next to the busy commuter station and our improved facilities are highly visible from the platform.

We have begun trading as a Seat dealer in Tunbridge Wells alongside our Skoda business and will be redeveloping the two showrooms to the new franchise specifications.

As previously reported, our loss-making Ford and Volvo business in Brighton was sold in July 2012 and we also closed our Ford retail dealership in Alton in September 2012.

In February 2013, we acquired a freehold property immediately adjacent to our Land Rover dealership in Lewes. The purchase of this site enables us to operate our aftersales activities at our enlarged dealership, having vacated nearby leasehold premises in April 2013.

In Ashford we are redeveloping our redundant bodyshop building to provide a larger showroom and workshop facility for the growing Skoda franchise.

Restructuring

We announced in July 2011 that we would be ceasing representation of Vauxhall for new car sales in Ashford and Tunbridge Wells when the then current agreements terminated. We now represent Skoda and Seat in the Tunbridge Wells site but, after positive discussions with Vauxhall since the end of our financial year, we have agreed to continue to represent Vauxhall in Ashford. We have seen a considerably improved performance there and we believe that this new arrangement will optimise our return from this important dealership. Trading from these Vauxhall sites has been treated as non-underlying in the period from July 2011 to March 2013.

In addition to these closures and disposals referred to above, we have further reduced central and branch administration costs. The funds generated by these actions will be invested in growing our remaining businesses and in acquiring further operations as and when appropriate opportunities arise.

The total costs attributable to the above restructuring were £1.07m, in addition to which there were redundancy costs of £0.41m.

Property

We operate primarily from freehold properties and our property portfolio provides strategic flexibility to our business model. During the year, we incurred capital expenditure of £3.67m and realised £2.9m net of disposal costs on the sale of our freehold properties sites at Alton and Goring-by-Sea. Net gains on the disposal of tangible fixed assets were £1.9m.

A valuation of the Company's freehold premises as at 31 March 2012 was carried out by chartered surveyors CBRE Limited on the basis of existing use value. Excluding the three freehold properties being offered for sale at 31 March 2013, the properties were valued at £4.6m over their net book value. In accordance with the Group's accounting policies (which reflect those utilised throughout the industry), this surplus has not been incorporated into the Group's accounts. The directors are advised that there has not been a significant change in values during the year to 31 March 2013.

We have exchanged contracts, conditional upon an appropriate planning approval, for the sale of freehold land in Hailsham for £1.4m. Our freehold property in Upperton Road, Eastbourne has been marketed and an offer accepted, subject to a planning approval. However, contracts have not yet been exchanged.

Following the purchase of the freehold property in Lewes, adjacent to our Land Rover dealership, for £2.0m in February 2013, we now occupy about half of the site for our aftersales activities. At the same time, we had terminated a leasehold unit in the vicinity which resulted in termination costs of £183,000. This represented a "one-off" opportunity to consolidate our significant Land Rover operations onto one site. We are examining with our advisors opportunities to redevelop the balance of this site.

The Folkestone site was leased to a tenant in October 2012 and unconditional contracts for the sale of the freehold property were exchanged on 16 May 2013. The proceeds of £495,000, which are the same as book value net of disposal costs, are receivable on completion by 15 August 2013. This property is shown as an asset held for sale in the balance sheet at 31 March 2013.

In Tonbridge we had a vacant leasehold site which was underlet in March 2013 to a third party at the current passing rent.

As a consequence of these various actions on properties, an impairment provision of £178,000 was required in the year.

Bank facilities

Overall bank facilities remain at £18.0m. Facilities from HSBC total £11.0m and include a three year revolving credit facility expiring in March 2015 together with a £3.5m overdraft. We also have a £7.0m overdraft facility provided by Volkswagen Bank. Bank borrowings net of cash balances at 31 March 2013 were £9.84m (2012: £8.7m).

Pension Scheme

The Group has a defined benefit pension scheme which was closed to future accrual in 2010. The directors have very little control over the key assumptions required by the accounting standards in the valuation calculations. Despite an increase in the scheme assets during the year of £5.5m, the deficit, net of deferred tax, increased to £10.5m at 31 March 2013 (2012: £4.8m), mainly due to the reduction in the discount rate used to value the liabilities of the scheme. The discount rate used to value the liabilities is related to the yield on Government securities and this rate has reduced during the year from 5.1% at 31 March 2012 to 4.3% at 31 March 2013, increasing the scheme's liabilities. Each 0.1% reduction in the discount rate increases the liabilities by between £1.0m and £1.5m.

The net financing return and service cost on pension obligations in respect of the defined benefit pension scheme is now presented as a non-underlying item. Prior period figures have been restated on a consistent basis, the result of which was to reduce profit before taxation before non-underlying items by £215,000 for the year ended 31 March 2012. While the total tax charge for the Group is unchanged, the comparative taxation figure in respect of non-underlying items for the previous year has been restated accordingly. The change in accounting policy had no impact upon the balance sheet of the Group.

The triennial valuation as at 31 March 2011 shows a deficit at that date of £14.4m. The Recovery Plan agreed with the trustees requires a cash payment of £375,000 in the year to 31 March 2013 followed by £346,000 in the year to 31 March 2014 increasing by 3.4% per annum thereafter.

The Board continues to work with the trustees to review the available opportunities that could further reduce the deficit.

People

During recent years we have seen considerable restructuring of the group but throughout this period of change our employees have been very positive in their approach. This has been a difficult period and I should like to thank them personally for their dedication under challenging circumstances.

I am particularly pleased by the success of our apprentice programme. We were delighted to win the South East Regional Apprentice Large Employer of the Year Award and were also recognised as one of the top 100 Apprenticeship Employers of the Year in the UK.

Having served for nine years as a non-executive director, Andrew Goodburn can no longer be considered independent in accordance with the UK Corporate Governance Code and he will retire from the Board this year. We thank him for his excellent contribution to the Board during his period of office. As is our policy, we have engaged independent executive search consultants to recruit a replacement.

Dividend

The Board has decided to recommend a final dividend of 7.0p per Ordinary Share (2012: 7.0p). If approved at the Annual General Meeting, this will be paid on 25 July 2013 to shareholders at close of business on 28 June 2013.

Together with the interim dividend of 5.0p per Ordinary Share (2012: 5.0p) paid during the year, the total dividend for the year will be 12.0p per Ordinary Share (2012: 12.0p).

Strategy

Our overall strategy of focusing on representing premium and premium-volume franchises is delivering positive results.

We continue to invest the proceeds from the sale of properties and closed operations into larger business opportunities in stronger markets to deliver higher returns on capital. Fewer, bigger sites will enable us to deliver performance improvement.

Outlook

Our improved profitability in the second half of last year has continued into the current financial year. We have seen signs of an improvement in consumer confidence with the new car market up 8.9% in the UK in the four months to April 2013. However the market in Europe remains weak and this could affect the levels of manufacturer support available to the UK market. We remain strategically well placed with resilient premium franchises to take advantage of any improvement in economic conditions.

S G M Caffyn

Chief Executive

31 May 2013

Consolidated Income Statement

for the year ended 31 March 2013

*see note 2

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2013

Consolidated Balance Sheet

at 31 March 2013

Consolidated Statement of Changes in Equity

for the year ended 31 March 2013

for the year ended 31 March 2012

Consolidated Cash Flow Statement

for the year ended 31 March 2013

Notes

1. GENERAL INFORMATION

Caffyns plc is a company domiciled in the United Kingdom. The address of the registered office is Saffrons Rooms, Meads Road, Eastbourne BN20 7DR. The registered number of the Company is 105664.

These consolidated financial statements were approved by the Directors on 31 May 2013.

2. ACCOUNTING POLICIES

The financial information has been prepared under International Financial Reporting Standards (IFRSs) issued by the IASB and as adopted by the European Commission (EC). This financial information has been prepared on the same basis as in 2012.

Whilst the financial information included in this announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.

As noted in the Half Year Report, this set of financial statements has been prepared in accordance with the accounting policies set out in the Annual Report for the year ended 31 March 2012 apart from the disclosure of the pension charge to the Income Statement. The net financing return and service cost on pension obligations in respect of the defined benefit pension scheme closed to future accrual is now presented as a non-underlying item. Prior period figures have been restated on a consistent basis, the result of which was to reduce profit before taxation before non-underlying items by £215,000 for the year ended 31 March 2012. While the total tax charge for the Group is unchanged, the comparative taxation figures in respect of non-underlying items for the previous periods have been restated accordingly. IAS 1 Presentation of Financial Statements requires presentation of a comparative balance sheet as at the beginning of the first comparative period, in some circumstances. Management considers that this is not necessary this year because the 2012 balance sheet is the same as that previously published.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2013 or 2012, but is derived from those accounts. Statutory accounts for the year ended 31 March 2012 have been delivered to the Registrar of Companies and those for the year to 31 March 2013 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

A copy of the annual report for the year ended 31 March 2013 will be available at www.caffynsplc.co.uk and will be posted to shareholders by 2 July 2013.

3. GOING CONCERN

The financial statements have been prepared on a going concern basis which the directors consider appropriate for the reasons set out below:

The Group meets its day to day working capital requirements through short-term stocking loans and bank overdraft and medium-term revolving credit facilities. The overdraft and revolving credit facilities include certain covenant tests. The failure of a covenant test would render these facilities repayable on demand at the option of the lenders.

The directors have undertaken a detailed review of trading and cash flow forecasts for a period in excess of one year from the date of this Annual Report which projects that the facility limits are not exceeded over the duration of the forecasts. These forecasts have made assumptions in respect of future trading conditions, particularly volumes and margins of new and used car sales, aftersales and operational improvements together with the timing of capital expenditure. The forecasts take into account these factors to an extent which the directors consider to be reasonable, based on the information that is available to them at the time of approval of this financial information. These forecasts indicate that the Group will be able to operate within the financing facilities that are available to it and meet the covenant tests with sufficient margin for reasonable adverse movements in expected trading conditions.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing the annual financial statements.

4. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

Except as described below, in preparing the consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 March 2012.

5. NON-UNDERLYING ITEMS

The following amounts have been presented as non-underlying items in these financial statements:

Property, plant and equipment have been reviewed for possible impairment in the light of economic conditions. As a result of this review the directors have decided to impair certain branch assets totalling £178,000 (2012: £174,000).

Losses incurred in the closure of businesses amounted to £1,067,000 (2012: £1,315,000). These costs include wind down expenses, recognised from the date of the announcement to close or terminate the dealer agreement with the manufacturer, and also branch specific redundancy costs which amounted to £135,000 (2012: 333,000). Dealerships affected included the closure of Ford at Alton and sale of Volvo/Ford in Hove together with the trading at Ashford, Folkestone and Tunbridge Wells following the termination notice with Vauxhall Motors in July 2011.

The Group undertook a programme of redundancies in its core business consequent to the current economic situation, resulting in non-underlying payments of £414,000 (2012: £32,000).

As stated in note 1 above, the net financing return and service cost on pension obligations in respect of the defined benefit scheme closed to future accrual is now presented as a non-underlying item. While the profit before tax for the Group is unchanged, the comparative figure in respect of non-underlying items for the previous period has been restated accordingly.

6. FINANCE EXPENSE

7. FINANCE INCOME ON PENSION SCHEME

8. TAXATION

9. EARNINGS PER SHARE